Munich Re Says Capital Relief Aids Life Reinsurance Gains

Munich Re, the world’s biggest
reinsurer, expects life reinsurance premiums to grow as the
business takes on more risk from insurers trying to meet tougher
capital requirements.

Under capital relief deals, reinsurers assume risks, such
as mortality claims on a life insurance portfolio, for a defined
period of time in return for a share of future premiums. Those
transactions, mainly in North America, have driven premium
growth over the past three years, said Joachim Wenning,
management board member responsible for life reinsurance.

“We expect that growth to continue, albeit growth rates
will come down from the pace seen in the past,” Wenning said in
an interview in Munich. Life reinsurance premiums at Munich Re
rose almost 11 percent to 5.3 billion euros ($6.9 billion) in
the first half of this year.

Reinsurers including Munich Re, Swiss Re Ltd. (SREN), Hannover Re
and Scor SE (SCR) have been expanding life reinsurance to complement
more volatile property and casualty business, where a number of
natural disasters, such as last year’s earthquake and tsunami in
Japan, have boosted claims. The deals, which help life insurers
remove risks from their balance sheet to bolster capital
buffers, are helping to underpin earnings at Munich Re.

Profit at the life unit, which contributes 39 percent of
Munich Re’s reinsurance premium income, advanced 3.5 percent to
267 million euros in the first half. That compares with property
and casualty reinsurance profit of 1.03 billion euros, after a
year-earlier loss of 734 million euros.

Profit Contribution

“Our life reinsurance business adds increasingly to the
group’s earnings as we strictly adhere to Munich Re’s
profitability requirements for a minimum return of 15 percent on
risk-adjusted capital,” said Wenning, 47, who joined Munich Re
in 1991. “Currently, our average return on that basis is about
20 percent.”

Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, in August raised its forecast for this year’s gross
premium income at the reinsurance unit by 1 billion euros to 27
billion to 28 billion euros.

Some capital relief deals, which typically run for three to
five years, are up for renewal soon, said Wenning, adding that
the Munich-based company is “optimistic” it can retain the
business.

“We don’t see a huge potential for additional growth in
the U.S.,” Wenning said. “The market is highly competitive and
we already have the business that meets our profitability
requirements. I don’t see a strategic reason for us to acquire a
competitor there, unless an opportunity which meets our
profitability demands comes up.”

Acquiring Portfolios

Assicurazioni Generali SpA (UCG) plans to seek a buyer for its
U.S. life reinsurance business as Chief Executive Officer Mario Greco works to restore the profitability of Italy’s biggest
insurer, people knowledge of the process said in August.

Generali has hired Citigroup Inc. to advise on a sale of
Generali USA Life Reassurance Co. and the unit may be worth $800
million to $1 billion, said the people, who asked not to be
identified because the process is private.

“We would rather buy life reinsurance portfolios than
whole companies,” Wenning said.